Can't find a place - Not sure how to proceed.

[Brandon C.]

I’m struggling a bit to find my first buy and hold property. I live just outside Nashville in a large and growing college town. I have $50k to invest into a rental property. My plan was to take $20-30k and buy one property now and see what I learn and then acquire another property at the start of next year.

Here’s the problem I’m having….There is a boom happening right now in the county. Homes under $175k are selling quick and many times well above asking. I’m hesitant to “jump in” just because I don’t know if this is a short term lack of demand problem, or something more long term. We just bought and sold a home in the county back in the fall and it was nothing like this. My area never really went thru a major downturn when the housing bubble popped. We just didn’t have much appreciation.

I had thought about buying a duplex, but there aren’t many for sale in our area, and the ones that are on the market are very old. Currently there is one built in 1960 for sale for $120k and renting for $675 per side which is reasonable for the area. My concern with a duplex is being limited to selling to investors and the appreciation not being has high when I do sell.

My realtor suggested I look at something newer since this is my first rental. He said that way I don’t have repair problems and I’d get a higher rent that would weed out some potential tenets. I kind of like this idea because then if I buy and decide being a landlord isn’t for me, I could easily sell in a year or two.

So here’s my questions:

• 1.Given the crazy boom that’s currently happening, should I sit for a bit to see if things cool some?

• 2.There are a couple newly built houses for sale for about $148k. I think I charge rent of 1% of purchase price (which is pretty common here). Plus I should see pretty good appreciate when I go to sell. Concern is that I haven’t read a lot where people buy new homes to rent out. Doesn’t seem quite as common.

• 3.Any other suggestions or opinions? Am I thinking about this stuff correctly? 

[Mindy Jensen]

Originally posted by @Brandon C.:

My realtor suggested I look at something newer since this is my first rental. He said that way I don’t have repair problems and I’d get a higher rent that would weed out some potential tenets. I kind of like this idea because then if I buy and decide being a landlord isn’t for me, I could easily sell in a year or two.

So here’s my questions:

• 1.Given the crazy boom that’s currently happening, should I sit for a bit to see if things cool some?

• 2.There are a couple newly built houses for sale for about $148k. I think I charge rent of 1% of purchase price (which is pretty common here). Plus I should see pretty good appreciate when I go to sell. Concern is that I haven’t read a lot where people buy new homes to rent out. Doesn’t seem quite as common.

• 3.Any other suggestions or opinions? Am I thinking about this stuff correctly? 

Welcome to BiggerPockets, Brandon. 

First, let's talk about your agent. Is your agent an investor-friendly agent? How much experience does he/she have? Newer properties don't necessarily mean less repair problems or higher rent. A quality build from 60 years ago is better than a shoddy build from a few years back. Rent is determined by many factors including the state of the property. Ever hear location location location?

Trying to time the market is difficult at best. Who knows if there is a bubble going on in your market, or if housing has just started to pick up and won't stop. The Federal Reserve is talking about raising rates. That should cool things off a little, but they have been talking about raising rates for years. There isn't a hard and fast date they are going to raise rates, either.

You say you think you charge 1% of purchase price for rent, which is pretty common here. Do you mean common in your area or on BP? Theory only works on paper. You can only charge the going rate for rent, otherwise you will have an empty rental. If you purchased for $148K, would you be able to rent it out for $1480/month? If that is what other properties are going for, sure. My local market is about .5% right now, so not great at all.

Appreciation cannot be predicted either, so you really can't count on significant appreciation. It might happen, and it might not.